BEE in the Know – Edition 1 2015

BEE in the Know – Edition 1 2015

Conversations with…Marsha Arnold

Marsha Arnold is the regional manager of the Gauteng operation of Grant Thornton Verification Services. She is an experienced technical signatory and SANAS Assessor for BEE Verification Agencies. As a past director of the Association of BEE Verification Agencies, Marsha was part of the task team that analysed the draft amended Codes of Good Practice and served on the dti’s Joint Technical Committee.

How long have you been in the BEE verification industry?

I have been in the industry since 2008 – 7 years. Prior to this I was an entrepreneur and lecturer at the Nelson Mandela Metropolitan University.

Having left Port Elizabeth for greener pastures in Johannesburg almost 4 years ago, please can you comment on life in Jozi?

I love Johannesburg. The people here are very friendly. The pace is fantastic – this city is alive and is a business Mecca.

What is the biggest issue you have ever had to deal with since entering this industry, be it technical or interpersonal?

I’d have to say it’s dealing with companies where you suspect fronting. This is a tricky issue to navigate, as verification agencies have an obligation to report irregularities to the dti.

I also find that converting the ‘non-believers’ is a difficult issue, as companies need to have a BEE scorecard and strategy in order to gain a competitive advantage, yet many are unwilling.

What is the greatest pitfall you find clients face when going through a verification?

This would be the compilation of their information. In larger companies there are invariably HR departments who take ownership of BEE and they have dedicated staff to monitor and compile BEE compliance information. With smaller companies, however, they do not have this luxury and are already battling to keep abreast of the day-to-day responsibilities. They tend to think it’s too difficult or an insurmountable task, when really it’s not. This resistance is quite frustrating to deal with for the verification agency as the entire process is delayed.

What is the one piece of advice you would give to your clients to help them better prepare for a verification?

For smaller companies particularly – record all your information as it happens. In other words, keep a ‘live file’ and collect information as you go – for example, when conducting skills interventions, put all the information together as the course is run or attended e.g. invoices, attendance certificate, contracts etc. For procurement, insist on a BEE certificate from your suppliers before you pay them and make this standard practice.

How do you think businesses should be preparing themselves for the imminent amendments?

Companies should already be aware of what they are likely to score under the amended codes, using the input data from their most recent rating. The company is then able to make strategic decisions which will impact the BEE Scorecard.

Companies who tender for business need to be cognisant of the competition they will face from black-owned companies who will receive automatic level ones and twos. In general, most white-owned companies will be in the same boat and face a one or two level drop under the new codes. This is all very well, but they can’t ignore the competition who are an automatic level one or two. BEE should be a focal point of strategic planning around the boardroom table. BEE is here to stay and companies should plan accordingly.

Do you have any insights or comments into the amendments which you would like to share?

I have lots! But I will focus on the good news that will further the intention of BEE and share these two important things:

  • the benefit of being able to recognise skills spend on black unemployed people will assist the smaller companies with small black representation. Small business are often faced with a situation of having a non-qualifying workforce and therefore battle to score points under skills development. The new codes give them an opportunity to earn skills points whilst helping to uplift and upskill people who are unemployed. This concession is great for the general upliftment of skills sets in South Africa. Unemployed people will then also have a further opportunity to prove themselves, and stand a chance of being absorbed into the company. The company in turn gains recognition for this on their skills development scorecard.
  • the split of enterprise development to incorporate supplier development. Currently contributions for ED are quite random – companies give a grant and then walk away. This practice is not in the true spirit of the codes. The amended codes encourage companies to look at their current needs, find appropriate businesses and develop and nurture them to the point where they become suppliers to the benefactor and points may then be earned under supplier development.

 What did you think of the state of the nation address – the thing on everyone’s lips a few weeks ago?

This is difficult to answer, without being controversial. However, what I can say is that the disruption really was quite embarrassing for the country. The speakers, though, were prepared and handled it quite well – they must have been prepped beforehand for possible disruption so could anticipate what was going to happen and deal with it accordingly. I could see the DA’s point in walking out.

The land reform issue was a bit controversial and it seems as though the President might be trying to put fear into certain population groups, which doesn’t leave you with a good feeling.

The President did say however, that 2015 is the year of transformation, which is very true in terms of the new BEE codes and their implementation.

I do feel, in my personal opinion though, that overall the country does deserve some answers from leadership.

What did you think of the budget speech last week?

I think the tax break offered to small SMME’s should encourage more informal businesses to comply with Tax and VAT regulations. Furthermore, the tax relief for lower income groups will have a positive impact on disposable income and stimulate the economy. One can only hope that the 80c surcharge tax on fuel does not negate the benefits of the former.

What is your definition of true empowerment?

I’d have to say it is giving everyone the opportunity to truly live their dream. If you want to open your own business you should have the same opportunities for development, skills enhancement, funding etc, as the next person. Ownership is not true empowerment – development skills is far more important, in my opinion. Skills sets have a greater effect on the bigger picture than ownership on its own. The development of skills gives rise to more effective ownership at the end of the day.

When you are not successfully marketing Grant Thornton, running the Johannesburg verification division, signing off certificates or conducting SANAS assessments, what are you doing to unwind from the hectic pace?

I love to socialise and nightlife in Johannesburg has much to offer. I also love building jigsaw puzzles – always a new challenge and you can do this on your own or with friends and family. I love a good glass of wine after a hard, but rewarding day’s work.

Contact Marsha Arnold, regional manager of Grant Thornton Verification Services, for assistance.

The vital importance of Empowering Supplier Status

With the implementation of the amended codes of good practice on 1 May 2015, comes the new concept of empowering suppliers. Do you know the importance of gaining this status and how to go about it? If you think you need to know more than you do, then you need to read on.

It is dangerous to underestimate the importance of the difference in the codes between the “value-adding supplier” concept, and the “empowering supplier” requirement which has replaced it in the amended codes.

The critical differentiator is that if you do not qualify as an empowering supplier, your certificate cannot be used towards your clients’ procurement score, therefore deeming it useless.

There is some debate as to whether state-owned enterprises will apply this requirement when selecting suppliers tendering for public sector contracts. In this case, the 90/10 or 20/80 principle will apply when scoring e.g. 90% of score for price and 10% for procurement score, etc. This seems to imply that the BEE level is more important than the score or empowering supplier status when awarding contracts.

So what is an empowering supplier?

An empowering supplier within a context of B-BBEE is a B-BBEE compliant entity, which is a good citizen South African Entity, complying with all regulatory requirements of the country. This would include employment equity reporting, tax compliance, skills development levy compliance and possibly more, still to be confirmed by the dti.

An empowering supplier should meet at least three of the following criteria if it is a large enterprise (turnover exceeding R50 million) or one if it is QSE (R10 million – R50 million):

  • at least 25% of cost of sales excluding labour cost and depreciation must be procured from a local producers or local suppliers in South Africa, for service industry labour cost are included but capped to 15%.
  • job creation – 50% of jobs created are for black people provided that the number of black employees since the immediate prior verified B-BBEE measurement is maintained
  • at least 25% transformation of raw material/beneficiation which includes local manufacturing, production and/or assembly, and/or packaging
  • skills transfer – at least spend 12 days per annum of productivity deployed in assisting black EMEs and QSEs beneficiaries to increase their operation or financial capacity.

Exempt Micro Enterprises (EMEs) and start-ups are automatically recognised as empowering suppliers.

There are some questions as to how we would validate and calculate some of these criteria, and we are awaiting the gazetting of the dti’s verification manual for further details on this. In the meantime, Grant Thornton have compiled a scorecard based on our best practice understanding of the criteria. Should you wish to perform a preliminary assessment of your empowering supplier status, please contact your local office for more information.

 

Enterprise development – BIG changes to early payment periods under Amended Codes

If your company has previously relied on scoring points for Enterprise Development (ED) via early payments to ED benficiaries, you need to read this

What has changed? The definition of an ED beneficiary is narrower, you need to spend more to earn the points and there are fewer points available.

Under the Enterprise Development element, a measured entity can receive recognition and points for paying certain suppliers earlier than usual. Effectively, you will get points for paying for goods or services you are already procuring.

What is the benefit to the recipient?

The intention is to assist smaller black-owned companies with cash flow. The downfall of these smaller companies is often the long wait between the outlay for an order and payment for that order.

Who qualifies as a recipient?

Under the new definition, a company qualifies as an enterprise development recipient if they are exempt micro enterprise (EME) or qualifying small enterprise (QSE) with at least 51% black ownership, i.e. 51% black owned entities with a turnover below R50 million.

How many points will you get?

This depends on the contributions you have made against your target. The maximum hyou can realize is 15% of the invoice, if paid on day 1.

Under the amended codes:

  • If the beneficiary is a supplier with whom you have a supplier development agreement, you can earn up to 10 points against a target of contributions 2% net profit after tax and
  • if the beneficiary is a supplier with whom you have no development agreement, you can earn up to 5 points against a target of contributions 1% net profit after tax

This mechanism is only available if payment is made within less than 10 days.

Previously, the calculation worked like this:

If the invoices amount was R100 and the measured entity made payment 5 days after the invoice date, then the measured entity’s contribution to ED was measured as follows:

How does it work under the amended codes?

If the invoiced amount is R100 and the measured entity makes payment 5 days after the invoice date, then the measured entity’s contribution to ED is measured as follows: